Category Archives: Financial Freedom

Thoughts on Market Cycles and Volatility

I’m an arm-chair voodoo economist.  I care about what happens in the US Equities Markets because I have a 401k and an IRA, which are closely tied to US Stock Market performance, and because I’d really like to ‘retire’ one day and be self-sufficient. I only participate in my company’s 401k because I get ‘free’ money from a Company Match, but beyond that, I’m trying to save my money in cash right now because I think things are fixin’ to get bad.

I would dearly love to be able to predict the future performance of US Equity Markets so I would know how best to deploy my cash to take advantage of market swings. But since I can’t predict market swings, the next best thing is to make an educated guess about it’s future performance. I think it’s best to try to understand the macro economic drivers as well as micro economic ones in trying to anticipate big problems ahead. Here’s what I think is happening now, and in the near future, based on what I’ve read, seen and heard lately:

  • We are nearing the end of another economic bull market. When that bull market started exactly is unclear, but let’s say it started at the end of the last market crash, in 2008. Depending on who you subscribe to, market cycles can last any where from 6-10 years. Well, it’s 2018 y’all.
  • The US Job Market never really recovered from the crash of 2001. In the late 90’s there were technology startups everywhere in the Washington DC area. Prior to 2008 there were still technology startups to be found, but after that they have largely disappeared. There are, however, plenty of Government and Government Contractor jobs to be found. Do these types of jobs really contribute to GDP and US innovation?  Oh yeah, then there’s Amazon, Facebook, Google, and Apple.  Federal Debt continues to sky-rocket and there is an ever-present specter of Government Shutdowns from CR to CR.  In sum, I’m very worried about our economic future.
  • The Bureau of Labor and Statistics (BLS) claims unemployment is currently down in the low 4% range.  Maybe that’s true, but that does not speak to the quality of jobs available out there, nor does it address the downward pressure on salary growth that employees currently face, nor the lack of job mobility.  It’s still an Employer Market, as it has been for the last 17 years or so.  In 1998, it was definitely an Employee Market and it seemed everyone was making money.  It’s too bad we could not preserve the status quo then.
  • The Federal Reserve, I think, is desperate to move interest rates higher because it does not have much room right now to address large concerns in the US Economy should a market crash happen.  I do not believe interest rate hikes are the result of a healthier US economy.  If the Fed can’t save us from Market Crashes through their never-ending tweaking of interest rates, then it is simply not able to justify it’s existence.  But there’s always the ‘Nuke North Korea’ ace-in-the-hole should America need a real distraction from economics at home.

Money is power. We need to follow the money and control it or it will control us.

Here’s a really good book I just read on this topic:

The Financial Freedom Crap Shoot

In 2017, the world’s billionaire club grew by a healthy 13% to roughly 2,043 people.  In my home state of Virginia, according to Forbes, there are just 5 such billionaires.  Since there are roughly 8.3 million people living in Virginia, this gives me about a 5 in 8.3 million chance of being counted as a billionaire.  As remote as that possibility is, it’s still better than the 1 in 258,890,850 chance I have of buying a winning Mega Millions lottery ticket, and the pot for that currently stands at a paltry $145 million.

Yes, the odds of becoming a millionaire or a billionaire are annoyingly remote, even for the average ‘free’ American.  Nevertheless, my goal is to be financially free and in command of my own financial future at some point in my life before I die.  The benefits of financial freedom are obvious.  We all dream about it.  But the execution of the dream seems to vary greatly, while many have completely given up on it all together.

Here’s a rough plan to Financial Freedom I have begun to formulate for myself.  This particular plan, as opposed to the ‘win the lottery’ plan, seems easiest and most practical for me to execute, even though it is far from ideal:

According to my current calculations, my closest shot at financial freedom will be in 19 years when I turn 67.  That kind of sucks, but let me sketch it out anyway.  I have three kids to get through college over the next 8 years and I have a house mortgage to pay off.  I have accelerated my mortgage payoff through additional principal payments of $1000, which should allow me to pay it off in the next 10-13 years (if I can be consistent with the plan).  Helping my kids get through college will induce some financial headwinds over the next 8 years.  As a divorcee, my alimony payments will end in roughly six months, which will free up additional capital to help with college expenses.  Once Child Support, Alimony, College and Mortgage expenses have all been paid, I estimate my monthly expenses to be somewhat akin to the following:

  • Food: $540
  • Gas: $150
  • Water Utilities: $50
  • Electricity Utilities: $67
  • Gas Utilities: $42
  • Phone: $85
  • Gym: $15
  • Internet: $80
  • Health Insurance: $800
  • Car Insurance: $60
  • Life Insurance: $45
  • House Taxes: $410
  • Car Taxes: $25
  • Annual Car Maintenance: $167

Total estimated monthly expenses should be around $2,536, or $30,432 per year.  My current estimated monthly Social Security benefit at age 67 is $2,893, which should just cover these estimated living expenses.  Additionally, If I can manage to save $1500 per month for the next 228 months (taking me to age 67), the nut accrued could provide an additional $950 per month for the next, and probably last, 30 years of my life.  So from age 67 to 97, I should have about $3,843 per month to cover living expenses, at least until I succumb to assisted living (at which point I become my kids’ problem lol)!

I estimate my odds of achieving financial freedom by age 67 at around 75 percent.  My next steps are to figure out ways to compress my financial freedom time line by studying how billionaires have made their extravagant fortunes.